Climate Standard Transaction Terms
Model climate terms and conditions that an impact investor financing private sector infrastructure in developing countries can incorporate into its standard documents.
What this clause does
These clauses will support developing countries in which investments are made to transition to climate resilient and low carbon infrastructure in line with Paris Agreement commitments. This will in turn help the country of investment achieve its nationally determined contributions.
Recitals
(A) The [Parties] wish to align the [operation and management of the Company] with the Sustainability Goals.
Clauses
1. Business of the company
The parties will each act in good faith to promote the best interests of the Company and ensure that its business is conducted and developed in accordance with good business practice and any business plan for the Company that is adopted from time to time in furtherance of (in equal emphasis): (i) the Business Purpose; and (ii) the Sustainability Goals.
2. Company sustainability goals
2.1 Within [30] Business Days from the date of execution of this Agreement the Board shall meet and resolve to:
(i) adopt the Company’s Sustainability Goals;
(ii) adopt a framework sustainability management standard by reference to [INSERT SPECIFIC STANDARD] (the Sustainability Management Standard); and
(iii) appoint a member of the Board to be the Company’s Chief Sustainability Officer (CSO).
Within [14] Business Days following the date of such meeting the Board shall provide a copy of meeting minutes to the [Shareholder] [Lender] [Guarantor] detailing the adopted Sustainability Goals along with a copy of the Company’s Sustainability Management Standard.
2.2 The impact of the Company’s Sustainability Goals shall be reviewed and evaluated by the Board on a quarterly basis (a Sustainability Review Meeting), and such evaluation shall include the following:
a) the Company’s progress in achieving its current Sustainability Goals;
b) whether any modifications should be made to the current Sustainability Goals;
c) whether any modifications should be made to the Sustainability Management Standards;
d) the effect of the current Sustainability Goals on the Company’s Business Purpose;
e) a measurement of the Company’s Carbon Footprint as at the date of each meeting; and
f) any additional Sustainability Goals.
2.3 The Board shall provide copies of the meeting minutes from all Sustainability Review Meetings and the measurement of the Company’s Carbon Footprint as at the date of each meeting to the [Shareholder] [Lender] [Guarantor] within [14] Business Days of the meeting date and any material changes to the Sustainability Goals shall be proposed to the [Shareholder] [Lender] [Guarantor] with such minutes in accordance with clause [2.1].
2.4 The Board shall provide any further information reasonably requested by the [Shareholder] [Lender] [Guarantor] in respect of the Sustainability Goals, including but not limited to any information recommended to be disclosed by a company under the GHG Protocol, provided that such request is made by the [Shareholder] [Lender] [Guarantor] within 30 Business Days of receipt of the minutes provided under clause [2.3].
2.5 At the end of each Financial Year the Board shall provide the [Shareholder] [Lender] [Guarantor] with details of the Company’s total Carbon Footprint for the Financial Year, which information must also be included in the Directors’ Report for each Financial Year.
2.6 The Company shall purchase carbon credits from a Carbon Offset Provider to offset its total annual Carbon Footprint within [30] days of the end of each Financial Year.
2.7 Evidence of the Company’s compliance with clause [2.6] shall be provided to the [Shareholder] [Lender] [Guarantor] with the minutes of the Board’s first Sustainability Review Meeting in each Financial Year.
2.8 [The Company shall ensure that any investment or equivalent activity that it makes using [funding] provided by the [Shareholder] [Lender] [Guarantor] is on equivalent terms to these Climate Standard Terms.]
3. Purpose/ Use of funds/ Use of guarantee
3.1 The [Borrower] [Company] shall apply all amounts [provided] [borrowed by it] [guaranteed] under this [Agreement] [Facility] [Deed] exclusively to Eligible Transactions.
4. Restrictions
4.1 In addition to the restrictions set out in clause [#] the [Shareholder] [Lender] [Guarantor] undertake[s] [to the other] [and separately to the Company] that they will not at any time, without the prior consent of the [Shareholder] [Lender] [Guarantor], carry on or be employed, engaged, or interested in any business which has not publicly set a Carbon Neutral Target Date or has not set its own sustainability goals or equivalent.]
5. Conditions precedent for first disbursement
5.1 The Company shall have adopted a Sustainability Standard and Sustainability Goals satisfactory to the [Shareholder] [Lender] [Guarantor].
5.2 The Company shall have appointed a member of the Board to be the CSO.
5.3 [Insert any climate risk mitigation measures required and not addressed during DD phase e.g. climate risk insurance]
6. Conditions precedent for subsequent drawdowns and repeating representations
6.1 The Company continues to have in place a Sustainability Standard and Sustainability Goals satisfactory to the [Shareholder] [Lender] [Guarantor].
6.2 The Company continues to have a CSO.
6.3 No Material Climate Breach has occurred in the twelve months preceding the date of [this Agreement].
6.4 The Company shall comply with the Climate Change Standard set out in Schedule [●] as amended from time to time; and shall implement such policies, procedures and systems as may be required to monitor compliance with the Climate Change Standard and to prevent liability under any Applicable Law.
6.5 The Company is in compliance with its climate reporting obligations under clause [2] and clause [8].
6.6 [Any Others]
7. Inspections
7.1 The Company shall, if deemed necessary by the [Shareholder] [Lender] [Guarantor] (acting reasonably), permit representatives of the [Shareholder] [Lender] [Guarantor], their accountants and their other advisors free access to all premises, persons, documents and other information at all reasonable times and on reasonable notice to carry out climate monitoring visits/audits and/or investigations into any failure or potential failure by the Company to comply with the Sustainability Management Standard, the Sustainability Goals or the Climate Change Standard at the Company’s cost, unless such visits or investigations do not reveal any material non-compliance by the Company.
7.2 The Company shall cooperate in good faith with the representatives of [Shareholder] [Lender] [Guarantor], its accountants and its other advisors to assist any such representatives in preparing reports for the [Shareholder] [Lender] [Guarantor] on [climate matters] in connection with the Project; and shall implement the recommendations of such representatives in order to address any non-compliance with [climate matters] by the Company.
8. Reporting
8.1 [The Company commits to supporting the recommendations of the International Financial Reporting Standards Foundation (IFRS) and to include climate related disclosures in its financial reporting from [insert date]].
8.2 The Company will include an assessment of climate risk (including physical risks associated with a changing climate and transition risks associated with the change to a net zero emissions economy, for example as a result of amendments to NDCs) in (i) the Climate Monitoring Report and (ii) its business continuity plan, including an assessment of resilience and whether the Company and its activities are “climate proof”. A copy of the Company’s Business Continuity Plan will be updated and provided to the [Shareholder] [Lender] [Guarantor] within [30] days of the end of each Financial Year.
8.3 The Company shall, as soon as it is available, but in any event no later than [90] days after the end of each [quarter for Construction Period]/ [financial year for Operating Period], deliver to the [Shareholder] [Lender] [Guarantor] the Climate Monitoring Report.
9. Ongoing covenants
The Company shall:
a) continue to have adopted a Sustainability Standard and Sustainability Goals satisfactory to the [Shareholder] [Lender] [Guarantor];
b) have a CSO;
c) [have in place [insurance for its material climate risks (where insurable) at a level acceptable to the [Shareholder] [Lender] [Guarantor] and shall have provided a copy of the certificate of insurance to the [Shareholder] [Lender] [Guarantor] within [30] days of [insert event]];
d) comply with the Climate Change Standard set out in Schedule [●] as amended from time to time; and shall implement such policies, procedures and systems as may be required to monitor compliance with the Climate Change Standard and to prevent liability under any Applicable Law.
e) be in compliance with its climate reporting obligations under clause [2] and clause [8].
10. Breach
Option 1:
Breach of the Climate Standard Terms is an Event of Default. The remedy periods for breach of the Climate Standard Terms will be the same as for breach of other material terms and conditions of the Transaction Documents.
Option 2:
If the [Shareholder] [Lender] [Guarantor] considers that a Material Climate Breach has (or may have) occurred, the [Shareholder] [Lender] [Guarantor] shall inform the Company and shall have the right to investigate the breach (or possible breach) using its own staff or such third parties as it may consider necessary. Within [30] days of the [Shareholder] [Lender] [Guarantor] informing the Company that it considers that a Material Climate Breach has (or may have) occurred, the [Shareholder] [Lender] [Guarantor] and the Company shall meet to discuss possible remedies for the Material Climate Breach. If the investigation by the [Shareholder] [Lender] [Guarantor] finds that there has been a Material Climate Breach, the costs of such investigation will be borne by the Company.
11. Notices
The Company shall:
a) use recycled paper and non-solvent based ink when printing a notice;
b) if the notice is being delivered by hand, use a courier service which operates zero or ultra-low emission vehicles only; and
c) allow notices to be given electronically.
Schedule 1
Matters requiring [Shareholder(s)] [Lender(s)] [Guarantor(s)] [Parties] Consent
Company Operations
1. Enter into any contract, transaction or arrangement in relation to the Company and the Project that it is likely to impede the achievement of the Sustainability Goals, the Sustainability Management Plan [and the Carbon Neutral Plan].
2. Make any material change to the Sustainability Goals.
3. Make any change to the Carbon Neutral Date.
[Additional climate clauses for shareholders agreement]
Additional Clauses
[1. Share option scheme
The Founders undertake to include terms in the Share Option Scheme that make the vesting of Shares under the Share Option Scheme conditional upon the Company having achieved its Sustainability Goals on or before the agreed vesting date.]
[2. Compulsory transfers - material climate breach
In the event that the Company or a Shareholder is (in the opinion of the Board or the other Shareholders [as applicable, acting reasonably]) in Material Climate Breach (a Defaulting Shareholder), the Board may, in its absolute discretion, serve a notice on that Shareholder notifying him that he has been deemed, with immediate effect, to have served a Transfer Notice in respect of their Shares (together with any Shares held by Permitted Transferees of the Defaulting Shareholder), and the provisions of clause [8] shall apply to any such transfer, save as provided by this clause 10. In such event, the Shareholder (together with his or her Permitted Transferees) shall be treated as a Bad Leaver, in accordance with clause [#], for the purposes of the valuation and transfer of his or her Shares[, provided that the Sale Price shall be at a 50% discount to Fair Value of the relevant Shares].
[3. Drag along
A Shareholder may refuse to be dragged or otherwise sell or transfer any or all their Shares to a Drag Purchaser if acting reasonably and in good faith they believe that the Drag Purchaser, its group or affiliates are operating in a way that can reasonably considered a Material Climate Breach or otherwise contrary to the Sustainability Goals.]
Definitions
Business Purpose means the [insert summary of activities of the Company].
Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure used by the United Nation (UN)’s Intergovernmental Panel on Climate Change (IPCC) to compare the emissions from Greenhouse Gases on the basis of their global warming potential over a specified timescale in order to express a Carbon Footprint that consists of different Greenhouse Gases as a single number.
Carbon Footprint means the amount in tonnes of carbon dioxide and Carbon Dioxide Equivalent of GHG Emissions that will be released into the atmosphere as a result of [the Project] [any Eligible Transaction funded by the Company using monies provided by the [Shareholder] [Lender] [Guarantor]] determined in accordance with the [Shareholder] [Lender] [Guarantor]’s carbon footprint methodology and carbon footprint tool.
[Carbon Footprint Standard means an internationally recognised standard for quantifying, monitoring, reporting and validating or verifying of GHG Emissions.]
Carbon Neutral means that every tonne of Greenhouse Gases emitted or caused to be emitted in relation [to the Project] [any Eligible Transaction funded by the Company using monies provided by the [Shareholder] [Lender] [Guarantor]] has been replaced by an equivalent amount of Greenhouse Gases removed in the same period by Carbon Offsetting.
Carbon Neutral Date means the date set by the Board for [the Company] [any Eligible Transaction funded by the Company using monies provided by the [Shareholder] [Lender] [Guarantor] to achieve Carbon Neutral status, which date should not be more than 24 months from the date of [INSERT].
Carbon Neutral Plan means the [Company]’s plan to achieve and maintain Carbon Neutral status, [which should be determined by reference to the GHG Protocol], by the Carbon Neutral Date.
Carbon Offsetting means the purchase of a quantity of carbon credits equal to the amount of the Company’s GHG Emissions from a Carbon Offset Provider.
Climate Standard Terms means clauses [●] to [●].
Climate Change Standard means the climate change standard of the [Shareholder] [Lender] [Guarantor] as attached at Schedule [●].
Carbon Offset Provider means the following organisations [INSERT].
Climate Monitoring Report means a report on:
a) the Company’s compliance with the Sustainability Management Standard, the [Shareholder(s)] [Lender(s)] [Guarantor(s)]] Climate Change Standard or, as the case may be, identifying any non-compliance or failure and the actions being taken to remedy such non-compliance or failure;
b) achievement of the Sustainability Goals; and
c) the Project Climate Information,
substantially in a form agreed between the Company and the [Shareholder] [Lender] [Guarantor], as such form may be amended or supplemented from time to time with the consent of the [Shareholder] [Lender] [Guarantor].
Eligible Transaction means a transaction that:
a) is permitted under the [Company] [Shareholder] [Lender] [Guarantor]’s Investment Policy; [and]
b) [is a Paris Aligned Investment][.][; and]
c) is permitted under the Climate Change Standard.
GHG Protocol means the current GHG Protocol Corporate Accounting and Reporting Standard produced by the World Resources Institute and the World Business Council for Sustainable Development, amongst others.
Greenhouse Gases (GHG or GHGs) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and as specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) or otherwise specified by the UNFCCC, and which currently include: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), and nitrogen trifluoride (NF3).
GHG Emissions means emissions of Greenhouse Gases over a specified area and period of time, each expressed as a total in units of carbon dioxide equivalent (CO2e) [and calculated in accordance with the GHG Protocol Corporate Accounting and Reporting Standard or such other equivalent and generally recognised greenhouse gas emission calculation methodology]
Material Climate Breach means a breach of [clause [insert clause numbers] of this Agreement][a Climate Standard Term] which is material with regard to all relevant circumstances, including, without limitation:
a) using monies provided by the [Shareholder] [Lender] [Guarantor] for any transaction other than an Eligible Transaction;
b) increasing the Company’s Carbon Footprint;
c) missing the Carbon Neutral Date;
d) taking any action that is contrary to the achievement of the Sustainability Goals.
Nationally Determined Contribution (NDC(s)) means the stated successive intended goals of a country to reduce its national emissions and adapt to the impacts of climate change as required under Article 4, paragraph 2 of the Paris Agreement.
Paris Agreement means the climate change agreement among countries to reduce Greenhouse Gas Emissions to (i) limit the global average temperature increase to well below 2°C (3.6°F) above pre-industrial levels by the year 2100; (ii) pursue efforts to limit the global average temperature rise to 1.5°C (2.7°F) above pre-industrial levels; and (iii) reach net zero emissions in the second half of this century, agreed during the 21st Conference of the parties to the UNFCCC in Paris in 2015.
Paris Aligned Investment means an investment that is (i) aligned with the mitigation goals set out in articles 2.1 and 4.1 the Paris Agreement to limit the global average temperature increase and reach net zero emissions, and (ii) does not undermine the implementation of NDCs of signatories to the Paris Agreement.
[Project means [insert summary info about project to be financed.]
Project Climate Information means (i) the Carbon Footprint of [the Company] [and] [the Carbon Footprint of any Eligible Transaction funded by the Company using funding [provided] [borrowed by it] [guaranteed] under this [Agreement] [Facility] [Deed]; and (ii) the Total GHG Emissions.
Scope 1 GHG Emissions means all direct GHG Emissions [within the physical boundary of the Project] [of any Eligible Transaction funded by the Company using monies provided by the [Shareholder] [Lender] [Guarantor]], including emissions produced by the combustion of fossil fuels, by industrial processes, from company vehicles and by fugitive emissions, such as refrigerants or methane leakage [other Project specific examples to be added].
Scope 2 GHG Emissions means indirect GHG Emissions from electricity purchased [by the Company for the Project] [by third parties in relation to any Eligible Transaction supported by the Company using monies provided by the [Shareholder] [Lender] [Guarantor]].
Scope 3 GHG Emissions means all indirect GHG Emissions emitted from sources which are not directly owned or controlled by the Company, excluding Scope 2 GHG Emissions, which occur both upstream and downstream in the Company’s supply or value chain in relation to [the Project] [any Eligible Transaction funded by the Company using monies provided by the [Shareholder] [Lender] [Guarantor]].
Total GHG Emissions means the sum of the Scope 1 GHG Emissions, the Scope 2 GHG Emissions and Scope 3 GHG Emissions.
Sustainability Alignment means the operation of the Company in a manner which (i) supports the achievement of the goals of the Paris Agreement, as set out in Articles 2.1 and 4.1 of the Paris Agreement, (ii) supports the achievement one or more of the United Nations Sustainable Development Goals as set out in the 2030 Agenda for Sustainable Development and (iii) supports [insert name of country]’s achievement of its Nationally Determined Contribution.
Sustainability Goals means the Company’s goals and objectives for achieving and maintaining Sustainability Alignment as set by the Board from time to time in accordance with clause [4.1], which shall include:
a) [developing a Carbon Neutral Plan;]
b) [the Company achieving pre-agreed reductions on its Carbon Footprint measured in accordance with one of the Carbon Footprint Standards;]
c) [the Company moving to a renewable energy provider when such source of energy is available;]
d) [undertaking projects to electrify operations, including, where possible, transport and logistics;]
e) [adopting a travel and expense reimbursement policy that puts climate change and sustainability at the forefront and has been approved by the CSO (as defined in clause [2.1]);]
f) [the purchase by the Company of electricity for its offices [and factory] on a green tariff that uses 100% renewable energy;]
g) [the use by the Company of web hosts and cloud service providers which run their servers on 100% renewable energy or have their own Carbon Neutral target date;]
h) [reviewing and updating supplier terms of engagement to procure goods and services from companies that have Net Zero Targets or other relevant climate targets] [sourcing all consumables used by the Company from sustainable and ethical sources;]
i) [implementing zero waste and circular economy practices and principles in existing operations and design of new products and services;]
j) [creating KPIs to measure the Company’s impact of its operations [; and] [.]
k) [others as applicable].
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